Economic Tidings Can’t Lift Dow

Despite a second month of sharply higher energy prices, overall inflation was moderate in November while retail sales were soft.

The new government reports Thursday were viewed as further evidence that the economy is in good shape with low inflation, but for the second day, good economic news failed to lift spirits on Wall Street.

The Dow Jones industrial average fell 98.81 to close at 6,303.71 in the biggest one-day sell-off since July. The Dow had fallen 70 points on Tuesday.

Analysts blamed the decline on continued selling pressures by investors trying to lock in profits before the end of the year and said the downward pressure was likely to continue even in the face of good economic news.

The Labor Department reported that its Consumer Price Index posted its third consecutive 0.3 percent gain in November and excluding food and energy costs was even betterbehaved, rising just 0.2 percent.

Meanwhile, retail sales fell by an unexpected 0.4 percent in November, led by a sharp 2.6 percent drop in auto sales. Analysts said they still expected retailers to have a decent Christmas, especially in contrast to last year’s dismal performance.

“Economic indicators remain positive and retailers are reporting brisk sales in December,” said Rosalind Wells, chief economist for the National Retail Federation. “All this points to solid gains and profits for holiday 1996.”

Economist Cliff Waldman of the 600,000-member National Federation of Independent Business said his surveys showed widespread optimism for a decent Christmas, when retailers often ring up half their annual profits.

But even with bright retail sales prospects, analysts said the rebound in consumer demand was pointing to moderate economic growth, not a boom. But with the expansion in its sixth year, moderation is just what the Federal Reserve is looking for to keep inflation under control.

“The nirvana economy continues,” said Merrill Lynch economist Bruce Steinberg. “We have a low-inflation, moderate-growth environment that is the best of all possible worlds.”

A third report Thursday showed that new claims for unemployment benefits fell for a third straight week, declining by 13,000 to 317,000, the lowest level since late August. Analysts said this was a good sign that the slowing economy was not threatening a steep rise in joblessness.

Through the first 11 months of this year, consumer prices have risen at an annual rate of 3.3 percent, up from 2.5 percent last year.

However, all the acceleration came in higher food and energy costs. Excluding those categories, the underlying rate of inflation is rising at an annual rate 2.7 percent, close to the lowest rate of the past three decades.

Last week, an advisory panel of five prominent economists contended that the consumer price index was overstating inflation by 1.1 percentage points annually and recommended switching to a cost-ofliving gauge that would correct flaws in the current CPI.

The Fed holds its final meeting of the year on Tuesday. It is widely expected to leave interest rates unchanged, even though Federal Reserve Chairman Alan Greenspan rattled financial markets worldwide last week by commenting that investors should guard against “irrational exuberance.”

Most analysts said given the good news on inflation, Greenspan’s remark should be seen as an effort to jawbone markets so that the central bank does not actually have to start raising rates to pop a speculative bubble.

For November, the 0.3 percent rise in consumer prices was led by a 1.2 percent jump in energy prices, the biggest one-month gain since a 3.2 percent surge last April.

Gasoline costs were up 1.8 percent while natural gas prices soared by 3.4 percent, the biggest increase since 4.7 percent in October 1982.

Food costs were up 0.3 percent in November, just half the 0.6 percent October spurt, reflecting moderation in the cost of dairy products, fruits and vegetables.